Magistrates' powers to sentence offenders to up to 12 months in prison are to be retained following a climbdown by the Ministry of Justice in the wake of the summer riots.

The decision, one of a series of amendments tabled by the government to its own legal aid, sentencing and punishment of offenders (Laspo) bill, is likely to be seen as a setback to the prison policies of the justice secretary, Ken Clarke.

Other amendments include the introduction of a maximum five-year sentence for dangerous drivers who seriously injure other people, and changes to knife crimes.

Magistrates' sentencing powers have been the subject of intense debate. The current limit for any single offence is six months but in 2003 the Labour government introduced legislation enabling it to be doubled to 12 months.

Although never implemented, Ken Clarke included repeal of the increased powers in the Laspo bill – sending a clear message that he did not want magistrates filling up prison places.

In the immediate aftermath of the summer riots, however, the attorney general, Dominic Grieve, appeared before the justice select committee and suggested that increasing the sentencing powers of magistrates would make the court system more efficient.

Early guilty pleas in magistrates courts cost the justice system on average £90 a case compared with £750 when similar hearings are referred to crown courts, Grieve said. It may therefore be worth considering, he added, "whether maximum sentences that can be imposed in the magistrates court can be raised".

Commenting on the policy reversal, the Ministry of Justice said that the "recent riots had provoked a debate about the issue" and that the department no longer wished to restrict the sentencing powers of magistrates.

The Labour justice spokeswoman Helen Goodman MP welcomed the U-turn. "There has been a great deal of confusion about what the government policy … actually was. The prime minister has previously backed magistrates gaining greater powers to punish offenders.

"These powers can be brought in at any time as they remain part of our law. I believe that these powers should remain part of our law in case they are needed in the future."

The amendment comes at the end of a difficult week for the justice secretary following his series of public disputes with the home secretary, Theresa May, over the Human Rights Act and her claim that a man had been able to avoid deportation because he owned a cat. Lobby sources have suggested he is bracing himself for enforced retirement after falling out with Downing Street over the "cat flap" .

The five-year sentence for dangerous drivers who seriously injure others is contained in another amendment to the Laspo bill. The new offence, backed by Clarke, is designed to meet the concerns of victims, their families and road-safety groups that the current two-year maximum sentence for dangerous drivers is not sufficient in cases where life-changing injuries are involved.

Justice ministers say they recognise that dangerous driving offences can be difficult to prosecute because it is difficult to prove that an injury was caused by a brief lapse in concentration.

More than 3,000 drivers were convicted of dangerous driving last year. A further 154 were found guilty of causing death by dangerous driving, which carries a maximum sentence of 14 years.

The justice secretary said he recognised that there was a gap in the law between the standard dangerous driving offence and death by dangerous driving.

"We have listened to the victims of dangerous drivers, their families, MPs, judges and road safety groups and their experiences have directly informed these changes," said Clarke.

On knife crime in the Laspo bill, a new amendment will ensure that those accused of carrying a knife will not be able to say they had a legitimate reason for carrying one if they use it or threaten anyone with it.

In another challenge to the bill, the Disability Law Service, a charity that provides legal advice to disabled people, has applied for a judicial review of the Ministry of Justice's plans to withdraw legal aid from welfare cases.

Sean Rivers, social welfare solicitor at the Disability Law Service, said: "The consultation by the secretary of state [Ken Clarke] confirms that at least 58% of those who require advice for welfare benefits appeals are ill or disabled.

"[But] the consultation confirms that's only 3% of over 5000 responses to the consultation agreed with the government's proposals. However the secretary of state still intends to remove access to a fair hearing for disabled people. As almost every expert in the area of law disagrees with the government's proposals we find that there is no other option than having this matter considered by the courts."